EPFO fixes 8.65% interest rate on provident fund deposits for FY17

New Delhi, Dec. 19 -- Employee's Provident Fund Organisation (EPFO) on Monday decided to lower the interest rate on provident fund deposits to 8.65% for 2016-17, a tad lower than the 8.8% that it paid in the previous year, people who attended a meeting of the organisation said.
EPFO's apex decision making body, the Central Board of Trustees (CBT) decided to lower the interest rate to 8.65% for the current fiscal, news agency PTI quoted Indian National Trade Union Congress Vice-President Ashok Singh as saying after the meeting at Bengaluru.
The lower interest rate may help save Rs 383 crore in interest payment, as per EPFO projections.
Experts said though the rate reduction is a setback for 40 million employees, it is still very attractive in comparison to the rate of interest on fixed deposits, national savings certificate, government bonds and public provident fund.
"Provident fund is meant for rainy days and to support an employee after his retirement. Such reduction in rate of interest may impact voluntary contribution by employees in their provident fund,"said Rakesh Bhargava, director of tax and accounting information provider Taxmann.
EPFO distributes interest rate as per the income generated from its investments every year and does not take money from the government.
Also read: Has EPFO lost its mandatory status?
In 2013-14 and 2014-15, the organisation had kept interest rates flat at 8.75% after raising it from 8.5% in 2012-13. It had granted 9.5% in 2010-11.
All India Trade Union Conference National Secretary D L Sachdeva, who attended the meeting of EPFO's apex policy making body, the Central Board of Trustees (CBT) in Bangalore, told Mint that EPFO's decision does not take into account the surplus left from the previous year.
"In 2015-16, even after declaring an interest rate of 8.8%, the investments of EPFO fetched a surplus of about Rs 400 crores. Also, the appreciation of investments in equity instruments in 2015-16 has not been taken into account while fixing the interest rate for this financial year," said Sachdeva.
Published by HT Syndication with permission from MINT.